Siblings but Not Twins: Making Sense of 'Mutual Trust' and 'Good Faith' in Employment Contracts

By Riley, Joellen | Melbourne University Law Review, August 2012 | Go to article overview

Siblings but Not Twins: Making Sense of 'Mutual Trust' and 'Good Faith' in Employment Contracts


Riley, Joellen, Melbourne University Law Review


[Since the 1970s English employment law has recognised a duty not to destroy mutual trust and confidence in the employment relationship and has developed more general duties of good faith and fair dealing at work. Australian employment contract law, on the other hand, has been slow to articulate clear principles around these concepts. This article proposes a framework for understanding both concepts--mutual trust and confidence on the one hand, and good faith performance of contracts on the other--in the hope that the articulation of clear and bounded principles may encourage general judicial acceptance and greater certainty in employment contract law.]

CONTENTS

I Introduction
II Mutual Trust and Confidence
III Good Faith
IV Bullying and Harassment Claims
 V Reputational Harm
VI Conclusions

I INTRODUCTION

It has become common for employees claiming contractual damages following termination of their employment to plead that the employer has breached 'an implied term of good faith, trust and confidence' in the employment relationship. (1) Sometimes two separate implied terms are pleaded: 'mutual trust and confidence' on the one hand, and 'good faith' on the other. (2) The circumstances in which these claim\s are made are as various as the causes of misery and grievance in human relationships at work. Sometimes they are pleaded hand in hand with allegations of bullying and harassment; (3) sometimes together with assertions of capricious denial of claimed entitlements (such as performance bonuses, (4) promotions, (5) or contract renewals). (6) Although 'mutual trust and confidence' and 'good faith' have become commonplace vocabulary in pleadings, there is still considerable confusion and disagreement about the content of these obligations. Some judicial decisions have been sceptical about whether they exist at all. (7)

The aim of this article is to propose a framework for understanding the role that mutual trust and confidence and good faith play in the resolution of employment contract disputes in Australia, in the hope that greater clarity around the concepts may convince the remaining sceptics that these are indeed legitimate employment obligations and they do not open floodgates to unpredictable damages awards. This framework may provide some guidance, and consequently alleviate some confusion, for the benefit not only of future litigants and their advisors, but also of the managers who determine workplace culture, and those who work within their influence.

This framework involves a number of propositions, each of which is expanded later in this article:

1 The two concepts--mutual trust and confidence on the one hand, and good faith on the other--describe closely related but nevertheless distinct obligations arising in an employment relationship, and perform different functions in resolving employment contract disputes. (8)

2 The notion that the employment relationship involves a duty on both employer and employee not to act in a manner calculated or likely to destroy the relationship of trust and confidence between employer and employee has been articulated clearly in the employment contract law of the United Kingdom, (9) and has been accepted or assumed in a sufficient number of cases in Australian jurisdictions to warrant its acceptance into the canon of Australian employment law. (10) This proposition, which I concede is not yet universally accepted by Australian employment law advocates or judges, is explained more fully in Part II. Breach of this obligation (by either employer or employee) constitutes a repudiation of an employment contract justifying an election by the innocent party to terminate the contract. In Australian law, breach of this obligation has not yet sounded in any damages claim independently of any damages flowing from the termination of the employment. (11)

3 Employment contracts, like other contracts which describe long-term (or at least, indefinite) relationships for the mutual benefit of the parties, are to be construed (12) according to the principle that parties to the relationship are committed to perform their obligations in good faith.

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